Skip to main content
6:00 pm
time for the final trade. tim? >> teck. >> guy? >> tenet health care. on fire. >> grasso? >> hewlett-packard. stock's been up and down. i think you have room here. trade it around a level.
6:01 pm
surround the trade! $16.25, $17.10. >> whoa. whoa. >> pete? >> not only did i win our street fight tonight with csx, but -- >> self-proclaimed victory. i like that. >> but look at that name right there. canadian pacific. it's going to go a lot higher. great manager and toot toot, this thing's going higher. >> giddy up. >> let's go. ride the train. >> all right. i'm melissa lee. thank you for watching. see you tomorrow, 9:00, "squawk on the street." more "fast money" here at 5:00 tomorrow. that's all right here on cnbc. i'm jim cramer. welcome to my world. >> you need to get in the game. >> go out of business and he's nuts, they're nuts! they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money," you can't afford
6:02 pm
to miss it. hey, i'm cramer. welcome to cramerica. i'm trying to save you some money. my job, entertain you, coach you, teach you. call me at 1-800-743-cnbc. i'm itching to go tonight. because i'm on a mission. a mission to take you from the forces that want you to lose money. including alas, yourself. yet, tonight i'm using the bully pulpit here on "mad money" to preach against one of the worst of all excesses when it comes to investing -- the sin of arrogance. when you own stocks you have to be humble. humility, people. although i of all people recognize that humility doesn't come naturally to everyone. you have to recognize you'll be wrong. perhaps often. as the past three years have taught you painfully your portfolio will get hit with things that you never saw coming. things you never imagine. let alone never thought
6:03 pm
possible -- >> the house of pain. >> the one thing you can be sure of when putting a portfolio together, at some point something is going to go off the rails. something is going to hit you, totally out of left field. a baseball analogy. that's why it's important to prepare yourself and your stocks for the next unexpected catastrophe. maybe it is time to make money in that catastrophe. or make money when things are going smoothly. how the heck do you get ready for a calamity when you don't know what it will look like? do you expect the unexpected as an investor? look, we'll never necessarily -- when the market is down gancally, we'll get hit. and one word -- diversification. it's the single worst in investing. it's the key to avoiding enormous losses and making sure you can stay in the game. a lot of people got blown out because they weren't diversified in the last couple of down turns. why i talk about it ad nauseam.
6:04 pm
if your portfolio is properly diversified you can come back from any disaster. those who aren't diversified, stopped watching the program years ago. fools. when i talk about diversification, making sure all that your stock eggs aren't in one sector basket. just to go ever this again, because i can never say it too many times, it means no one sector or segment of the economy should account for 20% of the portfolio. one sector, 20%. let's say you own five stock. only one can be a tech, only one can be a health, only one can be an energy or a food and beverage, but what if you're not sure? i need you to err on the side of caution. we've played this game so many eyears a lot of people were not sure. if two stocks trade together, if they succeed or fail based on the same failure, then you're not diverse philadelphia. take a look at their stock
6:05 pm
trading history. go -- the graphs are everywhere these days. are they in tandem? pick one, drop another. if the oil producer is the same sector. and i'm not doing this to be arbitrary and capricious or make it more difficult to invest. these aren't big technicalities people. when you get too concentrated in one area, then the moment something bad happens you'll want the throw yourself off the bridge. the losses will be -- enormous. imagine if you own too many health care stocks right before they got whacked by congress. how about banks in the financial regulatory reform that congress produced in response to the crisis? and this soured too many people, too many tech stocks going to the dotcom bust or perhaps you own many stocks you don't think
6:06 pm
are alike. we know zynga is aligned with groupon. how about if you own a pipeline company, they will trade down as i found out when my trust got dinged badly when oil talk a header. the goal of diversification is to spread your money across stocks. you can go higher. look, a whole market sell-off is one thing, but if it's just oil and you're in oil big, you're blown out. that's what happens. that's the traditional view of diver diversificati diversification, it's mandatory. you have to make sure your stocks don't overlap, i have something new here. you want a portfolio that works in all kinds of markets. so i'll talk about the new diversification. how to make sure it works in the unforgiving investing environment where diversifying by sector loan is not enough. things have gotten out of control or irrational.
6:07 pm
you need five different areas covered. you need some gold. you need a dividend paying stock with a high yield. you need a growth stock. need something speculative and something foreign. particularly in a year when the dysfunction in capital is so darn palpable that you have to protect your portfolio from the chaos washington is putting us through. we have gone from being incredibly business friendly company to one that is capable of wrecking just about any business if congress and the president put their minds to it. isn't that the lesson of the partisanship and acrimony over the tax wranglings and the spend-a-th spend-a-thons. cover all five markets and you with win in any market. i'll teach you how to analyze stocks so you fill every position with the best possible names that you feel comfortable with and i feel comfortable with. first, what do we need? well, look, i did them first. we need gold. need gold because gold has a
6:08 pm
special property. one that makes this metal precious to any diversified portfolio. gold tends to go up when everything else goes down. it's your insurance against economic or geopolitical chaos, uncertainty, inflation. all things that cause most stocks to decline and causes the price of gold to rise. i like to think of it as a stock insurance. you wouldn't own a home without homeowner's insurance. they won't let you buy the house without a mortgage. it's reckless. so should. invest without some gold exposure. it pays off when everything else fails. including whole currencies. and when it was doubt in 2010 and 2012, it was acceptable for all the countries. what is the current attempts to get the yen to be worth less up by the japanese government? gold's a handy antidote for savers in the debating countries. don't forget for a minute if this country doesn't get its finances in order, gold will be
6:09 pm
the best safe haven as a defense to washington. this is not by the way about upside. it's really about minimizing your risk to the downside. at any given moment there's a whole host of sectors that are poised to outperform gold. none of them work like an insurance policy. here's the tricky thing because you have not heard the height right way to do it. how do you own the gold? the easiest and least risky weight is through an etf, called the spider gold shares, but mostly known by gld. which owns the metal and does a terrific job of tracking the price. you can also potentially call your broker and buy bouillon, the actual physical bars of gold. that makes sense for those who can buy gold in bulk and pay to store it in a depository bank. it is better to go with the gld than the gold miners like the gold corps gg or abx. those are great companies but they have screwed up things in countless different ways.
6:10 pm
debt issues, mine shut downs, just make mistakes. well, the proof is in the pudding. gold court is down in 20012. gold still has another year up. 12 in a year. usually they didn't capture the movement with the stock. don't feel compelled to pick a gold miner. the gld is fine as an insurance policy against inflation and economic chaos. well, while i'm blessing precious metals, you can own silver through the slv. i'm not against that allocation because, well, remember, it does have more -- silver has more industrial use than gold. its use can be year cyclical. it's more hostage to the world's growth or lack of it. we want gold because it has no exposure of that kind. the bottom line, to make sure your portfolio works in any kind of market you need to own some market, either the bouillon or the etf. remember, it's your insurance against the economic chaos and
6:11 pm
that at times that can overwhelm you and your portfolio. elizabeth in florida, elizabeth? can >> caller: hey, cramer, listen, several months ago you laid out a blue print for new way of achieving diversification steeped in strategy versus allocation. i'm having a problem with one of the parameters. and that's the one of choosing a stock from a safe geography. cramer, i have an investment window of 6 to 12 months. where is my safe bet geography be? >> i think the safest geography in the world is canada. and i think that because it's got a pro business government. that is not going to be derailed by what i call a religion of orthodoxy of the environment. in other words, they're -- what i regard as being practical about the environment, that's important because they have a lot of resource businesses that will not be hurt by willy-nilly laws that could be passed that really do exappropriate nate a lot of their property. that's a little bit of a
6:12 pm
conservative view, but that's the way it take it. let's go to john in ohio. >> caller: hi, jim. how should i play a spinoff? should i spell the parent company or sell the company that was spun off or hold -- >> case by case, i typically like to keep the parent and sell the sub. but in some situations like abbott, i like abbott more than abv. it's case by case and if it's -- for instance, i spend a huge amount of time trying to describe what is better. i do my best on this show to tell you too. you want your portfolio to shine in any market, you have to own gold. i prefer the gld over the bouillon. but both give you insurance against chaos. and please don't buy the individual stocks of gold miners. stick around more more new diversification strategies. "mad money" will be right back. don't miss a second of "mad money."
6:13 pm
follow @jimcramer on twitter. have a question? tweet cramer #madtweets. send jim an e-mail to "mad money" or give us a call at 1-800-743-cnbc. miss something? head to
6:14 pm
6:15 pm
6:16 pm
what types of stocks should you own to help insure that you can make money in any environment? what strategies will work regardless of the state of the economy or if the market is in bear or bull mode? or washington's eagerness to wreck your balance sheet like it wrecked the nation? unless you're a professional money manager own no more than ten or fewer than five stocks in your portfolio. more than ten, you have to spend too much time on the homework. i prefer a couple of hours a week if you can spare it. do less, i don't know. less, you won't be diversified. if you have just four stocks you'll be in an unsafe position.
6:17 pm
you'll be overexposed to one industry or company that can do some damage to your nest egg. you have to get something in between. i used to say an hour per position, but now that the information is so available you don't. but you need to do homework on your stocks. tonight i'll teach hue you tow if ill the five types of stocks that represent the style and strategy. no one else is thinking like this. if you execute this correctly you'll always own something that works and hold your interest both matter. keeping you in the game i even when it feels so exkrooshuating as it did in 2008, 2012, you won't keep playing. at the same time, need to make sure your positions which will go much higher around the market is in bull market mode also won't fall apart when the market is in bull market mode. it's very hard to have stocks that fit that description. but let's go over what i already told you. you want to own some gold as
6:18 pm
insurance against chaos. including the shenanigans in washington. and a surrogate currency. because it tends to go up when almost every kind of stock goes down. what's next? all right, take a deep breath because you want to own something speculative. even a speculation is supposed to be the dirtiest word in the business. where it's paret of investing orthodoxsy. i'm saying right now it's a downright necessity as long as you follow my rules and you speculate correctly. i know that this is the exact opposite of everything you have been told by the usual purveyors. the gray beards who tell you to focus on big stocks like the dow jones industrial average because it's filled with allegedly blue chips names. funny, how being blue chip
6:19 pm
didn't help citi or general motors when they went under. and the professionals who give you the advice presume that home gamers like you are brain dead. that you're incapable of analyzing the prospects of publicly traded companies on your own. they don't think you can pick your own stocks. something that they could -- they think you wouldn't even pick your own nose. i mean, they're totally, totally contemptuous of you. so they assume you'll do less damage to your wealth if you only play around in big household names and stay away from speculative stocks that you never heard of. believe me off the desk, go out for a cocktail, have dinner, here's what they say. well, first of all, they think that most of you don't know the difference between a stock and a bond. that's the smug conventional wisdom on wall street and among the intelligentsia. but as a grizzled veteran, i have been around, i put my first -- i bought my first stock in 1998, i've been around.
6:20 pm
i'm telling you that their view is totally bonus. these pros who dismiss speculation are completely ignoring what i call the human element. the emosul component of investing. the fact is a lot of people invest poorly because they aren't engaged. they find it boring. they don't stay on top of what they own or they get worn out on the futile politics that can distract you from investing. that's why you neglect your portfolio. if you don't have the motivation to do the homework then you won't do too well either. buying stocks without homework is no better than gambling. gambling is kind of fun and if legal could be more fair. and that's where speculation comes in. just like you need some exposure to gold as an insurance against inflation and economic chaos, you need something speculative as a tonic against boredom. high risk stocks are conpell and an undeniable mystique to something that trades in the single digits. they let you keep your head in the game. i say a portfolio without
6:21 pm
speculation, without a long shot is a portfolio that won't capture your fancy. one that you'll be bored with, okay. you'll be bored with your money. and anxious to surrender it to people who only care about taking your fees and keep your statement in the drawer because you're not frinterested. speculation doesn't just keep you interested and when you do it with the right rules and disciplines, these stocks can generate massive returns in the stocks o. well more well-known and well-liked companies that are deemed safe. some of the biggest in my career came in biggest speculation. i'm know trying to sugarcoat the process. how do you identify the winners and losers? okay, two kinds of stocks that trade in single digit territory. that's the companies who have been abandoned and left for dead and the relatively undiscovered companies. in both cases you can get an enormous edge. the one is the intensely
6:22 pm
followed stocks of the household names because the big boys won't trade anything under five bucks. so you're benefiting from the classic mispricing created by overly pessimistic money managers. the large institutions, the big safe mutual funds, the pension funds and insurance companies. they don't want to own single digit stocks. they think they look too dangerous. they're afraid to be questioned about why they bought this junk, why do they own it, why do they risk money foolishly. here's the big issue for them, especially if the stock does go to szero, how do they explain that? that's how you get fired, people. when there were safer stocks out there what were you doing in the $4 stock, that's what the money manager fear. they fear the downside of stocks that can look broken. they know they can lose they job if they buy them.
6:23 pm
nobody is looking over your shoulder. so when the fundamentals of the company starts to turn, you can buy at terrific prices. the big boys won't buy until it goes higher. and bank of america, $3, generational -- sallie mae, it was at 6 bucks in 2009. and regeneral aaron hit pay dirt or sprint in 2012, back from the bad. all of these stocks were supposed to be trash. okay. they were indeed in the dumpster. but if you went dumpster diving you caught doubles or triples in all of them. deals like these admittedly don't come around every day though. we speculate in tiny stocks in companies that people never heard of too and that's okay too. we're looking for sectors that seem like they can capture the imagination of the crowd.
6:24 pm
the next hot fad that will sweep through the wall street, we're trying to get ahead of that. that's not a crime, ladies and gentlemen. that's a good goal. sometimes, but not always, it will be backed up by genuine earnings powerme. we saw it with the small companies that make components. i recommended the mobile, sky works solutions and cirrus logic. they were big winners. they're part of the apple iphone. they became discovered and then became obvious. when we liked them they were off the radar screen. we liked arm holdings when it was of the radar screens. they were torpedoed by expectations that were so high. and they could never equal the expectations. so all i can tell you is don't stick around but in an interim they made a lot of dough. cirrus and sky works and arm holdings even with underlying long-term trends, speculative fads usually have the life cycle of a may fly.
6:25 pm
okay? so drop -- i like that like our mr. son, remember to lock in your profits when you have them. so don't get burned when interest wanes. cut your losses before they come too large. when a spec you thought would work doesn't turn out. you're not buying a stock to hold and hold on forever. no. as long as you're discipline and ring the register it doesn't matter if it comes down later. that doesn't mean to hold on to the deteriorating ones. it's the essence of irresponsible investing. you must believe in the fundamentals. here's the bottom line. you need to own something speculative. that's a key part of the new diversification that i'm offering you tonight. something that will help you stave off boredom, allow you to rack up huge gains, lots of farns thattic stocks either beaten down stocks that should have been beaten down on companies that don't have any
6:26 pm
sponsorship and got lost in oblivion. it could be a triple waiting to happen. john in michigan, john? >> caller: hey, jim, you're awesome and i'm confused. about the strategy for buying and selling stocks during earnings season. what's your best advice, buddy? >> i looked at the period from 2008 to now. went over every earnings period. every single one. four earnings period. i found that for my travel trust i made less money in those weeks than all the rest. you're talking about two weeks a quarter and there's four quarters so you're talking about eight weeks where i made less money. i tabulated everything. it was good empirical work. don't pull the trigger during that period because i am telling you as a seasoned pro i made less money in those weeks than in any other weeks during the year. jerry in texas, jerry. >> caller: yes.
6:27 pm
>> jerry. >> caller: jim, we'll be asking the city fathers of houston to consider changing the name to wattsville during football season next year. >> oh, you're too hard. too hard. >> caller: if one were to assume that the trade balance of the u.s. would show some nice improvement the next few years, what section or two would you guess might benefit more, jim? >> if our trade balance were to get in line, you would only be able to do that because we were importing less energy and exporting some which means you would want to be in the natural gas and integrate oils which needs to be in eog. that's the best. keep up with cramer all day long. follow @jimcramer on twitter and tweet your questions #madtweets. i know what you're thinking...
6:28 pm
transit fares! as in the 37 billion transit fares we help collect each year. no? oh, right. you're thinking of the 1.6 million daily customer care interactions xerox handles. or the 900 million health insurance claims we process. so, it's no surprise to you that companies depend on today's xerox for services that simplify how work gets done. which is...pretty much what we've always stood for. with xerox, you're ready for real business.
6:29 pm
today is gonna be anch whaimportant day for us.for. you ready? we wanna be our brother's keeper. what's number two we wanna do? bring it up to 90 decatherms. how bout ya, joe? let's go ahead and bring it online. attention on site, attention on site. now starting unit nine. some of the world's cleanest gas turbines are now powering some of america's biggest cities. siemens. answers.
6:30 pm
scalpel. clamp. glitter. [ male announcer ] staples has everything your business needs. even custom banners. and now get 50% off banners and posters. staples. that was easy. even custom banners. we all know the stock market is an endless capacity to surprise. and befuddle. even the most grizzled stock veteran like myself. we recognize that whenever we buy a stock, there's a good chance the investment just won't work out. but nobody likes to dwell on the idea that all we do is make mistakes. tough cookies.
6:31 pm
tonight i'm putting on my negative nancy hat. i'm going into the glass half empty mode and in the immortal words of joe e. brown in "some like it hot" nobody is perfect. why? maybe they think i'm a misanthrope. a stock sadist who is spreading despair and making people miserable? no, guess whose job that is? washington's. i do it because i want to help you compensate for your own fallibility to make sure that you're as prepared as possible caused by the slings and arrows of outrageous of the market or the whips of the bears. by the way, also while being positioned to maximize your profits when thing goes well. how about that bard? never underestimate the medical device market when faced with the affordable care act and brush up on your shakespeare.
6:32 pm
let's say you like one area of the market. let's say you favor the bank stocks but then they get hammered. i mean, immersively. diversification means you won't have your belt and shoelaces confiscated because you had your entire portfolio in a sector that's become a loser. no matter how much conviction you have in the banks or any industry, you know one sector is not allowed to make up more nan 20% of your portfolio. even if the banks are about to rally, sorry. even if bank after bank is poised to rally, you can't own more than ten stocks. and always always always trumps your convictions about where stocks are headed. by never having your stock eggs in one sector, one basket, same thing, you'll never have to suffer through the agony of watching everything you own get crushed when that -- when, not
6:33 pm
if the that basket gets run over a truck. you'll end up with scrambled eggs all over your face, even the ones at the summit diner i live. go try the corned beef hash. what if you want protection against a market that's difficult to fathom, a belt and suspenders approach. the diversification not just by sector, but by strategy. like being diversified by sector, it immunizes you against massive across the board losses. by diversified by strategy, no matter what kind of market we're in you're likely to own something that's working. have gold, and i like the gld, another space for speculative stock. how do you find the speculations? frankly i'll be direct about this. every friday in answer to your needs @jim cramer on twitter,
6:34 pm
pick out one of the archives that i have given out that intrigues you, you can keep your focus, that compels you. let that one be the one. call or e-mail me and i can handle it on air. alas the show is ridiculously interactive. that that's the hallmark of it. that's the way it will b. you need a growth name. a secular growth stock on wall street. it's nothing like the establishment clause in first amendment. which i can live without. on wall street when a company has secular growth unlike smoke stack growers they aren't held hostage to the health of the economy and will keep on expanding even during a slow down. when you get your hands on a slow secular grower it can lift higher and higher, going on the new high after new high. as long as the growth lasts. it's not dependent on gdp growth.
6:35 pm
you don't need the economy roaring. this is true for names like amazon, whole foods. but it is important to be wary of when growth drops off. as we have seen with chipotle, deckers and express grips. well, to name three i was enamored of. still like. but clearly, you have to be more wary about. because they missed their quarterly expectations and that is the kiss of death for this kind of stock. remember, if i want to miss a quarter i'll do so with a cyclical stock that's cheap, not a growth stock that's extensive and that therefore puts me in the house of pain. of course i never want one of my stocks to miss a quarter. that's why people dump the stocks. they don't want to miss a second quarter. company that misses a first quarter is always in the penalty box on this show. how do you analyze growth? remember, we're paying for the expected future -- future earnings per share. now, i'm going to do some algebra.
6:36 pm
you can write it down. get a piece of paper, and a pen, because this is basic algebra. this is how you arrive at a stock price. it's the share price, write letter p, equals the earnings per share which is the letter e, times what's known as the multiple. letter m. so e earnings times m, multiple, equals p, the price that a stock is trading at. the multiple is the key to figuring out what a stock is worth and what it should do in future. even as i try to make it precise by using the algebraic equation, it's cyclical. investors are willing to fork over for a company's future earnings and the most important determinant to that price to earnings multiple, what has the most effect on the special sauce is the growth rate. i learned this in first week of
6:37 pm
goldman sachs and then i taught it for a year. i drilled it into all of the young associates' head. we'll pay a bigger multipler, because the earns will get bigger in the out years. when it comes to the high octane secular grower the stock can trade up to the multiple that's as high as twice the long term growth rate before it gets too expensive. not for me, but for the majority of the money managers out there. including mutual funds. let's say they're growing at a 20% clip, the stock can fly as high as 40 times earnings. although close observers of this show know i have in the last year totally backed away from that. i have said that if -- that no more than one and a halftimes earnings. you can't pay more than that. not two times. just way too dangerous for me. if the company is growing at 20% you won't see me be willing to pay more than 30 for that level of growth. okay? 30 times earnings.
6:38 pm
you lose too much if anything goes wrong. as which know from the day that chipotle lost a hundred points. it was kind of a minor miss. typically, growth stocks won't trade down to one times the growth rate, unless that's something wrong with the fundamentals. even secular growth. possibly because of higher interest rates, that makes the multiples and growth stocks shrink. they become less attractive to the yields that people can get from cash or treasuries. bonds, stocks, they're in the supermarket. stocks win sometimes. bonds win sometimes. by the same token, lower rates make growth rates more attractive and cause the multiples to expand. there's the lesson. more important when you own a high growth stocks you need to be sensitive with the way that the earnings estimates are going. and whether they're increasing at faster or slower paces. these stocks can sort after new
6:39 pm
highs and new highs as long as they're raising the estimates quickly enough. when they have momentum a stock like apple can double over the course of 12 months and the multiple be lower than where it started because the earnings estimates increased even faster than the share price. remember the e, the estimate, okay, times the multiple because of the -- the estimate is the earnings estimates are going higher. you're going to get a higher stock. this kind of momentum allows them to avoid the ugly gravitational pull. you have to be careful when playing with a fast grower because as soon as it misses a step, it reports a quarter that's good enough or not better than expected, the moment we learn that the growth is slowing even slightly, that stock will start getting pounded. the pain can last for years as it goes through the multiple shrinkage problem. that's what happened after apple mised two straight quarters and it was painful. and google. it took deckers to the woodshed after three misses.
6:40 pm
yep, it takes years to recover. as momentum seeking investors pay less and less for progressively slower earnings growth, so all the money managers get shaken out and the multiples sinks to levels where value oriented people are interested in the dividend, people interested in the company that made so much cash that they can buy back stock. just sell. i'm not kidding. just sell. it takes way too long for it to come back if it ever comes back at all. when with see multiple compression, we sell. the bottom line, to build a portfolio that can work in every kind of market you need a fast grower. a secular growth that has room to run. one where the earnings estimates are trending higher, but stay on top and if the momentum starts to decline, you take the money and you run. stay with cramer. ♪
6:41 pm
[ engine turns over ] [ male announcer ] we created the luxury crossover and kept turning the page, writing the next chapter for the rx and lexus. this is the pursuit of perfection. a hairline fracture to the mandible and contusions to the metacarpus. what do you see? um, i see a duck. be more specific. i see the aflac duck. i see the aflac duck out of work and not making any money. i see him moving in with his parents and selling bootleg dvds out of the back of a van. dude, that's your life. remember, aflac will give him cash to help cover his rent, car payments and keep everything as normal as possible. i see lunch. [ monitor beeping ] let's move on. [ male announcer ] find out what a hospital stay could really cost you at there. i said it. they don't have pictures of my kids. they don't have my yoga mat. and still, i feel at home. could it be the flat screen tv? the not so mini fridge? ♪ the different free dinner
6:42 pm
almost every weeknight? or maybe, it's all of the above. and all the rest. am i home? nope. but it almost feels that way. homewood suites by hilton. be at home. is moving backward. [ engine turns over, tires squeal ] and you'll find advanced safety technology like an available heads-up display on the 2013 lexus gs. there's no going back.
6:43 pm
"lightning round" is sponsored by td ameritrade. i keep preaching diversificati diversification, making sure that your money is spread across many different industries with no overlap among your five largest stock holdings because it's the single best way to play
6:44 pm
defense, to protect your investments. but there's more than one way to be diversified. i'm showing you how to put together a portfolio that's diversified. it can work in any kind of market, bull, bear, doesn't matter. so far i talked about gold, about growth. now time for the fourth piece of the puzzle -- yield. you need to own a stock with high-yielding dividend. one at least. unlike when we diversified by sector, owning more is a good thing. dividend paying stocks is not as sexy as speculation. but you know who needs sex appeal? buying high yielders and then reinvesting in the stocks is one of the greatest ways to make money out there. plain and simple. it allows your investment to compound over time. meaning the money from your dividends giving you compounding and increasing the dividends. people think that high yielders are only about safety. but go back to 1996, about 40% of the return from the s&p 500
6:45 pm
has come from reinvested dividends. always let your dividends reinvest. dividend stocks aren't merely a place to hide when the market gets rough. although they do represent a fabulous safe haven, difficult markets. they're not just for retirees. although again they do a terrific job on that front too. investing in high yielders is first and foremost one of the smartest strategies out there for making money. >> house of pleasure. >> also one of the safest since dividend stocks have a cushion. i call it yield support. that helps them hang in there when everything else is getting annihilated. it's a at a level too attractive for investors to hide. i like ahys. stocks that yield more than 4%, not because of dividend increases but because the share prices have fall son far, so fast, causing the yield to skyrocket. it's why i like the stocks of companies that have recently raised the dividends.
6:46 pm
it's about the strength or the strengthening of the business. a company that can raise its dividend is one has steadily reliable growth and you can be darn sure won't be cutting the dividend at any time soon. even better, for 20 or 30 or 40 consecutive years i think of 3-m, but how do you analyze a high yielding stock? think safety first. safety never takes a vacation. high yields are attractive, but a high yield can be a signal that the dividend is unsustainable and has to be cut. that's why you have to put through a rigorous safety inspection. maybe the company can raise it too, but if it seems endangered you need to stay away. that's why i call super high dividends red flags on the show. what do you look for to tell if the dividend is secure? first, above and beyond
6:47 pm
everything else, we look at the rule of thumb is if a company has earnings has greater than twice the dividend payout we know it can sustain the dividend even in lean times when they shrink. if not, you need to go to step two. look at the cash flow. especially important when dealing with a companies that have a lot of heavy capital investments which cause them to report high depreciation and only or the -- amortization costs. these costs don't come out of a company's actual cash. that's what matters. they do skew the earnings per share that are announced lower, which is why the cash flow can give you a better idea about whether or not the dividend is sound. because it doesn't have the depreciation and amortization. you have to make sure there isn't a lot of debt coming due too. the company may not have the money on hand. it has to save it. you need to know how to actually collect the dividend. forget all the jargon like you
6:48 pm
hear that declaration date, the record date, we only care about one date -- the must own date. the last day you need to own the stock. it's always the day before the x-date. here's the bottom line, if you want to embrace the diversification on top of the old fashioned sector, every market out there, then you must own a high yielding stock. these dividends protect your stocks and they're also a terrific way to make money. what's not to like? stay with cramer. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.
6:49 pm
great, everybody made it.
6:50 pm
we all work remotely so this is a big deal, our first full team gathering! i wanted to call on a few people. ashley, ashley marshall... here. since we're often all on the move, ashley suggested we use fedex office to hold packages for us. great job. [ applause ] thank you. and on a protocol note, i'd like to talk to tim hill about his tendency to use all caps in emails. [ shouting ] oh i'm sorry guys. ah sometimes the caps lock gets stuck on my keyboard. hey do you wanna get a drink later? [ male announcer ] hold packages at any fedex office location. today is gonna be an gimportant day for us. you ready? we wanna be our brother's keeper. what's number two we wanna do? bring it up to 90 decatherms. how bout ya, joe? let's go ahead and bring it online. attention on site, attention on site. now starting unit nine. some of the world's cleanest gas turbines are now powering some of america's biggest cities. siemens. answers.
6:51 pm
all night i have been preaching and teaching, trying how to have a portfolio that works in every market, from the marauding bears kind, to euphoric pamplona running of the bulls kind. you'll always have the new diversification. just like the old school diversification by sector that i pushed endlessly ensures your stocks that i won't all key off
6:52 pm
the same bad news and get beaten to bits at the same time. the new diversification by strategy means that whatever the markets are doing you have one approach to investing that's paying off big time. let's go over the first four areas again. then i'll explain the fifth and the final group you need to make. first u start with some gold. either the actual physical bouillon or an etf like the gld that owns and follows the performance of the precious metal. we are not gold bug on the show. to say something of the infomerci infomercials. we like it for insurance because it's the one thing that usually goes up when every other stock declines in response to inflation or chaos. it's great proxy for a currency that's down on its luck. you need a speculative stock. something that trades less on the $10. like a company left for the dead, or one they never heard of. the speculation defends against boredom. gives you the performance of an enormous upside in a short period of time which should keep you engaged in the idz be and
6:53 pm
motivate yourself. it would be great if you can do a couple of hurts per week for the stocks. third, you need a way to profit for a whole lot when the market is in good shape. and still potentially keep delivering gains if things get worse. which is why you must have exposure to growth. the earnings estimates have powerful momentum. fourth, you need yield. and you need the gains to come from reinvesting the dividends, the compound factor. we need one more for you to be truly diversified. the last piece. you must have some foreign exposure. not just the u.s. company that does a lot of business overseas but a genuine company based in another country. why? because the u.s. has become the caboose of the economic lag train. we're lagging everyone, china and germany. and you up to keep it away from the congressional lock jams.
6:54 pm
even if we were leading the rest of the world you'd still want to have something foreign purely for the sake of international d diversification. and you need that because of the partisanship that's so nasty. you don't have to bet on anything exotic look a chine chinese -- like a chinese company, am though those countries are where the growth is. buy canadian stock. their financials look like ours. canada is healthy. one that handled the financial crisis and the recession than we did here in the u.s. you can think of etfs. the ewj in japan, the eww in brazil. those are etfs that act as proxies for the continents overseas. you can no longer just phone home. you have to go around the world for 20% of your holdings. please do this. you just can no longer trust washington to do the right thing when it comes to your savings or investments. in fact, you can trust them to do the wrong thing. which is why i insist that you have an international
6:55 pm
investment. here's thement be line. the country doesn't matter as long as it isn't here. if you can build a portfolio that one that's diversified by strategy, not just sector, a foreign stock is a must. you simply can't afford to keep all of your stock eggs in one government basket. way too easy for them to get crushed. "mad money" is back after the break. (announcer) at scottrade, our clients trade and invest
6:56 pm
exactly how they want. with scottrade's online banking, i get one view of my bank and brokerage accounts with one login... to easily move my money when i need to. plus, when i call my local scottrade office, i can talk to someone who knows how i trade. because i don't trade like everybody. i trade like me. i'm with scottrade. (announcer) scottrade. awarded five-stars from smartmoney magazine.
6:57 pm
all right.
6:58 pm
now it's time to take some mail. i love your show. i met you at legal seafoods out do doors years ago. i have a feeling that reits may be a long cycle. yes, i remember you. you were terrific. here's what you need to know. they have outperformed every single kind of stock in the last four years. they're -- really any ten-year period. i don't care which real estate investment trust you buy. i recommend federal realty. i think they're the best in the game. by the way, i also is have to tell you the health care reits they're really terrific. stay with cramer. revolutionizing an industry can be a tough act to follow, but at xerox we've embraced a new role. working behind the scenes to provide companies with services...
6:59 pm
like helping hr departments manage benefits and pensions for over 11 million employees. reducing document costs by up to 30%... and processing $421 billion dollars in accounts payables each year. helping thousands of companies simplify how work gets done. how's that for an encore? with xerox, you're ready for real business. otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪ is moving backward. [ engine turns over, tires squeal ] and you'll find advanced safety technology

Mad Money
CNBC February 11, 2013 6:00pm-7:00pm EST

News/Business. (2013) New.

TOPIC FREQUENCY Cramer 7, Washington 4, Aflac 3, Deckers 2, Scottrade 2, Siemens 2, Jim Cramer 2, Canada 2, Elizabeth 2, Jerry 2, Joe 2, Abbott 2, Nan 1, Google 1, Bard 1, Szero 1, Ohio 1, Michigan 1, Texas 1, S&p 1
Network CNBC
Duration 01:00:00
Scanned in San Francisco, CA, USA
Source Comcast Cable
Tuner Virtual Ch. 58 (CNBC)
Video Codec mpeg2video
Audio Cocec ac3
Pixel width 704
Pixel height 480
Sponsor Internet Archive
Audio/Visual sound, color

disc Borrow a DVD of this show
info Stream Only
Uploaded by
TV Archive
on 2/11/2013